Investor A and B (in Japan) jointly invest in company X in Vietnam. A sells its capital contribution to B. According to the Sale and Purchase Agreement, A has the obligation to pay taxes to the contractor for the income derived from the transfer activity.
In this case, I have several questions as follows:
What is the appropriate method for B to pay A? Can B pay directly to A via the banks of the two companies in their home country (Japan)? Should party B make the payment to company X in Vietnam, and then X retains the contractor tax amount to report and pay on behalf of A, after which the remaining amount would be refunded to A?
Answer:
According to the provisions in Clause 1, Article 10 of Circular 06/2019/TT-NHNN regarding the payment for the transfer of shares or capital contributions in enterprises with foreign direct investment as follows:
“Article 10. Transfer of Investment Capital and Investment Projects
- The payment of the value of the transfer of shares or capital contributions in an enterprise with foreign direct investment as stipulated in Clause 2, Article 3 of this Circular shall be carried out as follows:
a) Between non-resident investors or between resident investors, the transaction shall not be conducted through the foreign direct investment capital account;
b) Between a non-resident investor and a resident investor, the transaction must be conducted through the foreign direct investment capital account.”
Thus, according to the above provisions, the payment of the purchase price between Investor A and Investor B will not be carried out through the foreign direct investment capital account of Company X. Regarding the fulfillment of corporate income tax obligations of Investor A when transferring its capital contribution in Company X, under the provisions of point c, Clause 2, Article 14 of Circular No. 78/2014/TT-BTC, in this case, Company X has the obligation to declare and pay on behalf of Investor A the corporate income tax payable from the capital transfer activity of the foreign entity.
Based on this, your company may consider carrying out the payment for the purchase price using one of the following two methods, depending on the agreement between the Buyer and Seller as stated in the Capital Transfer Agreement:
(i) Investor B pays the purchase price directly to Investor A through Investor A’s bank account in Japan. In this case, both parties may agree to deduct the corporate income tax of Investor A arising from the capital transfer transaction from the purchase price that Investor B will pay to Investor A; or
(ii) Investor B pays the purchase price through the payment account of Company X. After Company X completes the declaration and payment of taxes, the purchase price will be transferred back to Investor A.
